Risk & Compliance “The Art of the Possible” in Promotional Pricing for Deposits: A Precise, Multi-Lever Approach

Promotional Pricing for Deposits
Jun052019

In my first blog post, we explored the current state and challenges tied to promotional pricing in deposits. Now, let’s investigate the many possibilities for deposit promotions that provide multiple levers to deliver differentiated value for the customer and measurable benefits for the bank.

It’s no surprise that customers have varying perspectives on savings. Some customers are rate-sensitive, while others are more goal-focused. Some may value the satisfaction that comes from a high rate that rewards rigorous saving, while others may be “new savers” that are saving up for a special family vacation.

To reach a diverse set of customer segments, promotional pricing designs require various levers that provide meaningful, differentiated value to the customer. This is the “art” of what is possible in deposit promotional pricing—moving from a common, static design to a multi-faceted approach that is more nuanced, sophisticated, and aligned with customer wants and needs.

You may be asking:  does this multi-lever approach really work? Let’s look at an example that most of us can relate to—our precious mobile phones. In their quest to attract customers, mobile phone carriers offer varying promotions, ranging from price-based offers, to 2-for-1 devices, to complimentary bundled services, such as entertainment streaming subscriptions. Multiple offers (or levers) allow carriers to deliver true value to their various customer segments. This allows a mobile carrier to make the “buy” decision about more than just the price. (Seriously, have you seen the price on the new phones?)

Similarly, banks can move beyond the “one-size-fits-all” approach that focuses only on the billboard rate to touting more customer-centric, compelling promotional offers that intelligently target select customer segments. Today, banks need multiple levers to incentivize specific behaviors in a diverse, demanding, and savvy world of deposit customers. The distinct promotional levers (such as rate, offer duration, minimum balance, geography, bank relationship, and new money) are some of the most relevant “colors” on the palette that can be used to paint a compelling deposit offer design.

Consider a customer segment that believes the minimum balance is a challenge to meet, so they ignore a savings offer.  A headline offer with an attractive rate and a balance requirement of $10,000 (or higher) would be out of reach for many new savers. Delivering customer-focused offers, with right-sized balance requirements, and possibly a shorter duration can convert more prospects into saving customers.

Geography is another important lever to consider. In Australia, banks offer attractive savings offers during the Chinese New Year, available only at select branches. This strategy is ideal to assist new market expansion or to reinvigorate a targeted market. Existing customers can be offered a new-money promotion with a tailored rate, duration, and balance requirements through analytically derived segmentation.

As an offer nears the completion date, banks can leverage models to present retention offers to existing promotional customers to stem costly runoff that can exceed 40% at many banks. Effective retention offers ensure the promotional investment was not wasted. As a best practice, banks should test offers with clients and prospects routinely to discover what works (and what doesn’t) with various customer segments.

Customers’ needs are dynamic, and banks require flexible systems that allow them to deliver and test offers to meet financial targets and improve the customer experience. Offer design can tap into many levers, as we have seen with mobile carriers. A single, static design cannot meet today’s requirements for more personalized, customer-focused, multi-faceted strategies.

In our next post, we’ll explore how banks can actually achieve these goals with the right technology and analytics.

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